Industry funds weigh higher super trade-off

The superannuation guarantee (SG) or how much employers are required to pay of their workers’ salaries into their super accounts is set to face its first rise in seven years to 10 per cent in 2021, before it eventually reaches 12.5 per cent in 2025.

But while the increase has already been legislated, Liberal MPs have cast doubts on whether it should proceed, after the Grattan Institute argued raising the SG to 12 per cent would cost workers $20 billion a year from reduced wages. 

In a letter to Stephen Boyd, secretary of the House of Representatives standing committee on economics sent on Tuesday, the industry body maintained that its internal modelling work has largely concluded “there is no basis to support a direct one-to-one [trade-off] with wages”. 

However presentation slides based on an internal report, also supplied to the committee, looked at wage effects from the superannuation guarantee based on enterprise business agreements (EBAs).

It noted that employers could need to make a compromise to meet increased costs – although it did not conclude where businesses would necessarily draw funds from, stating it was not certain to be fully taken from wages.

Meanwhile, the letter had entailed Industry Super’s response to questions taken on notice from the committee during its last appearance, an emergency hearing called on 14 May. 

The body reported its internal modelling team had presented a range of scenarios and trade-off positions to inform the public debate on the relationship between the super guarantee and wages – but it stated it “should not be assumed” that Industry Super accepted the wage trade-off positions. 

ISA specialist retirement policy adviser Philip Gallagher, who leads the modelling team, wrote an opinion piece in the Australian Financial Review in February using scenario modelling that assumed a partial wage offset of 70 per cent. The body has used that assumption in other public forums. 

“Even taking that conservative approach with a 70 per cent trade-off, a couple each earning $50,000 could either have an extra $111 to spend a year while they are working if the super rate doesn’t increase, or $4,350 a year extra in today’s dollars to spend for 25 years in retirement if it does,” the letter stated.

“The objective of assuming an offset scenario is not to recognise that rate as correct but rather to show that even with the highest wage offset assumptions there remains an undeniable case for increasing the SG, as workers of all income levels are better off overall.” 

Industry Super added that the increase has already been delayed, providing businesses with a longer lead time to adjust and factor it into their operations.

The internal report by senior analyst Bruce Bastian, which is “not for citation”, looked at wage effects from the superannuation guarantee, using data modelling based on enterprise business agreements (EBAs) and it noted there are a “number of channels” to fund increased contributions.  

Lower wages are pointed to as a way for employers to borne the costs of increased super contributions, alongside a reduction in profits, increased prices for consumers or lower equilibrium employment. 

“Ultimately, who bears the cost will depend critically on competitive factors such as labour supply and demand elasticities and factor substitution, but also on institutional factors such as employment protection legislation, minimum wage determinations and the degree of unionisation,” presentation slides prepared on the paper stated.

But the slides noted that it is “difficult to draw firm conclusions” and further work is needed to give robust estimates that can be used for modelling as it may not be representative of wages outside EBAs such as those set by awards.

“However, there does appear to be sufficient evidence to show that increases in SG are not fully incident on wages as some assert,” the presentation stated in its conclusions. 

“The analysis does point to costs being shared between employers and employees but the extent varies over time.”

Industry Super chief executive Bernie Dean rejected bats by Liberal MP Tim Wilson at the SG increase during the body’s economics committee appearance. 

When Mr Wilson, who is chair of the committee, asked if Industry Super would prefer a scenario where the contribution was increased but more people were out of work, Mr Dean said “setting it up in such a binary fashion is a bit short-sighted”. 

He argued the rise will be essential to rebuild Australians’ retirement savings following the coronavirus crisis, particularly for those who had accessed the early super scheme. 

Speaking on the latest findings, Mr Dean commented: “As I have previously publicly stated, experts have a range of positions on the super guarantee rise and its impact on wage growth.

“But our research has proven that even using the most conservative assumptions, workers of all income levels are far better off overall with super going up,” he said.

“To suggest our modelling shows otherwise could be wrong, but those suggestions aren’t surprising when they come from certain politicians who are opposed to workers keeping and spending more of their own money over their lifetime.”

Research from the Centre for Future Work commissioned by the body stated there are significant flaws in the argument that SG increases would come at the expense of workers’ wages, pointing to past evidence and logical inconsistencies with labour supply and demand models. 

The Fair Work Commission has also rejected the position.

But the RBA stated in February that the rise would be coming out of workers’ salaries.